G-20 advocates market-set currencies as Japan defends policy

Group of 20 finance chiefs are planning to disavow competitive devaluations in a statement to be released after talks end in Moscow tomorrow, according to an official from a G-20 nation.

The latest draft of the group’s communique doesn’t repeat this week’s pledge by the Group of Seven to avoid using exchange rates as a goal of policy, said the official, who asked not to be identified because the document isn’t public. It will instead echo language adopted by the G-20 in November, which urges currencies to be set by financial markets.

The G-20’s finance ministers and central bankers are trying to find common ground after the G-7 this week sought to avoid a so-called currency war by uniting around a commitment not to target exchange rates -- only to then divide over whether the statement signaled irritation with Japan.

“All members of the G-20 need to deliver on the commitment to move towards market-determined exchange rates,” U.S. Treasury Undersecretary Lael Brainard said at a conference in Moscow today. “G-20 members will have to bring their exchange frameworks into alignment so that we grow together and avoid a downward spiral of beggar thy neighbor policies.”

Bank of Japan Governor Masaaki Shirakawa today defended his nation’s economic strategy, arguing it is aimed at beating 15 years of deflation and not at driving down the yen.

Japan’s Stimulus

The yen weakened against the dollar after the G-20 official spoke, retreating for the first time in four days. It traded at 93.46 per dollar at 8:48 a.m. in New York.

“What there is is a debate going on about the deployment of monetary policy across a number of developed economies,” Australian Treasurer Wayne Swan told reporters in Moscow today. “In so far as that monetary policy is directed towards getting stronger growth in the domestic economy, that’s a good thing for the global economy.”

Japan is in the spotlight after the yen tumbled about 12% in the past three months on the bet that new Prime Minister Shinzo Abe will pursue a campaign commitment to demand more aggressive monetary policy. Since his election, the Bank of Japan has adopted a 2% inflation goal and paved the way toward open-ended asset purchases.